Systems and methods for providing volume-weighted average price auction trading

ABSTRACT

Systems and methods for providing traders with an opportunity to trade on the VWAP price are provided. After a trader enters a VWAP auction session, the trader has a predetermined about of time (i.e., the length of the VWAP auction period) to place bids and/or offers on an item. When the VWAP auction period ends, the electronic trading application matches the VWAP orders. The VWAP orders that are not matched are cancelled. The electronic trading application collects trading information (e.g., price, size, etc.) corresponding to the received orders. The collected information is processed to determine the VWAP price. The VWAP price is presented to the trader and the matched VWAP orders are filled based on the determined VWAP price.

CROSS-REFERENCE TO RELATED APPLICATIONS

This application is a continuation of U.S. patent application Ser. No.10/678,582, filed Oct. 2, 2003 now U.S. Pat. No. 7,548,876, which claimsthe benefit of U.S. provisional application No. 60/415,843, filed Oct.2, 2002, both of which are hereby incorporated by reference herein intheir entirety.

BACKGROUND OF THE INVENTION

The present invention relates to systems and methods for providingauction trading systems, and more particularly to auction tradingsystems that allow traders to place orders on volume-weighted averageprice (VWAP) contracts.

Electronically based trading systems have gained widespread popularityover the years. Such trading systems are frequently used for tradingitems ranging from financial instruments (such as stocks, bonds,currency, futures, contracts, etc.) to used household goods (such as oldrecords, baseball cards, antiques, etc.). In many of these tradingsystems, bid/offer-hit/lift processes are used to negotiate a sale of agiven item. In connection with such processes, bids and/or offers foritems are entered into a trading system and a hit or take is submittedin response to a bid or offer, respectively, to agree to a sale, or apurchase.

Historically, traders use benchmarks to evaluate their trades.Determining the volume weighted average price (hereinafter the “VWAP”)is one of the most familiar trade evaluation benchmarks. Traders,brokers, institutional investors, and managers determine the quality oftheir trades by calculating the VWAP and comparing the VWAP to thetransactions performed by their respective traders. For example, if atrader purchased a stock today at a price lower than the currentcumulative VWAP, the trader bought the stock at a good price—i.e.,better than the average buyer of the stock. On the other hand, if thetrader bought the stock at a price higher than the VWAP, then the traderoverpaid for the stock relative to other buyers of the day. Tradersoften monitor the VWAP to, for example, predict when short term buyingand selling opportunities may arise.

While there are markets that provide trading data such that the VWAP maybe calculated, these markets do not provide an opportunity for buyersand sellers to trade on the VWAP. Trading on the VWAP may allow tradersto participate in the liquidity of the market.

Therefore, it would be desirable to provide systems and methods thatprovide traders with an opportunity to trade on the VWAP.

SUMMARY OF THE INVENTION

It is therefore an object of this invention to provide systems andmethods that provide traders with an opportunity to trade on the VWAP.

This and other objects are accomplished in accordance with theprinciples of the present invention by providing systems and methodsthat enable traders to trade on the VWAP price.

A trader may select from a list of available VWAP auction sessions. Inresponse to selecting an available VWAP auction session, the trader hasa predetermined amount of time to place bids and/or offers. The traderis prompted to enter a symbol name (e.g., usg_(—)10Y VWAP) and a size.In some embodiments, a trader may also enter a spread to the calculatedVWAP price. In some embodiments, traders may be permitted to placeorders that are improvements to the VWAP price.

Traders may continue to place bids and/or offers until the VWAP auctionperiod has ended. Once the electronic trading application has determinedthat the VWAP auction period has ended, the electronic tradingapplication matches the VWAP orders. VWAP orders may be matched on afirst-in-first-out (FIFO). In another suitable approach, VWAP orders maybe matched based upon a percentage of the size of the order inrelationship to the lesser of the sum of the bid sizes or the sum of theask sizes (i.e., average size basis). For example, if a first trader anda second trader place bids to each buy 200 30 Year U.S. Treasury bondsand a third trader places an offer to sell 100 30 Year U.S. Treasurybonds, then the first and the second trader will each receive fiftypercent of the 100 available bonds. However, the electronic tradingapplication may match the VWAP orders using any other suitable approach,such as, for example, by prioritizing the stack first by best price andthen by time of order in order to match VWAP orders.

In response to matching the VWAP orders, the electronic tradingapplication cancels the VWAP orders that are not matched. In someembodiments, VWAP orders that are not matched may be rolled over toanother VWAP session on the same item. In other embodiments, a tradermay place a recurring VWAP order such that the VWAP order is placed eachday for a specific VWAP auction session. The recurring VWAP order may beplaced every day until the trader cancels the recurring order.

In response to matching VWAP orders and canceling the unmatched VWAPorders, the electronic trading application may collect size and price(if available) information of the received orders. The electronictrading application processes the collected size and price informationto determine the VWAP price. Upon determining the VWAP price, theelectronic trading application presents the traders of the VWAP auctionsession with the determined VWAP price. In response to determining theVWAP price, the electronic trading application fills the matched VWAPorders. The electronic trading application may fill the matched VWAPorders by physical delivery, financial delivery, or any other suitabledelivery approach.

In some embodiments, the electronic trading application may use othersuitable approaches to determine the VWAP price. For example, the VWAPprice may be based on the matched and unmatched VWAP orders. In anotherexample, the VWAP price may be determined for any suitable time periodsuch as on the day of the trade, for multiple days (i.e., multi-dayVWAP), or for a particular time period (i.e., intraday VWAP).

In some embodiments, the electronic trading application may enabletraders to retrospectively trade on the VWAP. A trader may place a bidto buy a particular item at the VWAP price for a specified period oftime. For example, a trader may place an order to pay for his yearlyelectricity bill (or the quantity of electricity consumed in a year)based on the VWAP price for electricity. The trader may forecast thetrader's electricity costs for the next year.

BRIEF DESCRIPTION OF THE DRAWINGS

The above and other objects and advantages of the invention will beapparent upon consideration of the following detailed description, takenin conjunction with accompanying drawings, in which like referencerefers to like parts throughout, and in which:

FIG. 1 is a block diagram of a system that may be used to implementprocesses and functions of certain embodiments of the present invention;

FIG. 2 is a block diagram of a workstation, a server, and a back officeclearing center that may be used to implement the processes andfunctions of certain embodiments of the present invention;

FIG. 3 is an illustration of an interactive dialog window that may begenerated in accordance with certain embodiments of the presentinvention;

FIG. 4 is an illustration of another interactive dialog window that maybe generated in accordance with certain embodiments of the presentinvention;

FIG. 5 is an illustration of a market cell that may be generated withcertain embodiments of the present invention; and

FIG. 6 is a flow diagram of a main process that may be used to provide avolume-weight average price auction with certain embodiments of thepresent invention.

DETAILED DESCRIPTION OF THE INVENTION

This invention relates to creating systems and methods for providing anauction on items traded at a weighted average price based on the volumeof trades done with a specified time period. The following embodiment ofthe invention relates to the electronic trading of fixed income relatedinstruments—e.g., such as the United States Treasuries, United KingdomGilts, European Government Treasuries, and Emerging Market debts, swaps,repos, etc. This invention may also be used for the electronic tradingof securities or other financial instruments such as stocks orcurrencies, and is not limited only to the trading of fixed incomerelated instruments. Nevertheless, this embodiment does not limit theinvention to this particular subject matter. Rather, it is provided forillustration of the invention and not to limit it to a particularcommodity or market.

It should also be noted that although the following embodiment of theinvention relates to the trading of a single instrument, such as UnitedStates 30 Year U.S. Treasury bonds, this embodiment is not limited onlyto the trading of a single instrument. Rather, the invention may also beapplied to the trading of a basket of instruments. For example, tradersmay place offers for VWAP contracts on the net price movements of thecurrent two, five, ten, and thirty year United States Treasury bonds.

A typical trader calculates the volume weighted average price(hereinafter the “VWAP”) to evaluate their trade. For example, if atrader purchased a bond today at a price lower than the currentcumulative VWAP, the trader bought the bond at a good price—i.e., aprice better than the average buyer of the bond. On the other hand, ifthe trader bought the bond at a price higher than the VWAP, then thetrader overpaid for the bond relative to other buyers of the day.

As used herein, the “VWAP” or “VWAP price” is a weighted average pricebased on the volume of trades done on one or more items within aspecified auction time period. When the specified auction time periodends, all trade prices and sizes of an item associated with a VWAPauction are collected. In response to collecting the prices and sizesentered by traders, the VWAP may be calculated using the followingalgorithm:

${V\; W\; A\; P} = \frac{\sum\left( {{Traded}\mspace{14mu}{Price}} \right)\left( {{Total}\mspace{14mu}{Size}\mspace{14mu}{at}\mspace{14mu}{that}\mspace{14mu}{Price}} \right)}{\sum{{Total}\mspace{14mu}{Size}\mspace{14mu}{of}\mspace{14mu}{Trade}\mspace{14mu}{during}\mspace{14mu}{Designated}\mspace{14mu}{Trading}\mspace{14mu}{Period}}}$An example of calculating the VWAP for a VWAP auction from collectedtrade prices and sizes is shown in Table 1. It is worth noting that theillustrative examples which follow focus on bonds and exchangesinvolving such instruments. Nevertheless, this invention is not limitedto the illustrative examples described herein, which are set forth onlyfor purposes of illustration. Rather, this invention is limited only bythe claims which are found at the end of this specification.

TABLE 1 Price Size Action Decimal Price Decimal Price × Size 100.09 35Take 100.28125000 3509.843750000 100.08+ 60 Take 100.265625006015.937500000 100.08 50 Take 100.25000000 5012.500000000 100.07+ 10 Hit100.23437500 1002.343750000 100.07 5 Hit 100.21875000 501.093750000100.062 25 Hit 100.19531325 2504.882831250 100.06 17 Hit 100.187500001703.187500000 100.052 42 Hit 100.16406250 4206.890625000 The Total Sizeis 244. Σ(Traded Price) (Total Size at that Price) = 24456.67970625. TheVWAP price for the current 30 Year US Treasury bond is 100.232293878074.

In a preferred embodiment, a trader, such as large block institutionalinvestors, speculators, or market markers, may want to employ systemsand methods according to the present invention to trade on the VWAPprice. Trading on the VWAP price allows these traders to participate inthe liquidity of the marketplace. Trading on the VWAP price may beattractive to large block institutional investors who continually adjustportfolios, speculators who may be seeking arbitrage opportunities, andmarket makers who are willing to deal on the VWAP price.

It should be noted that the present invention is primarily describedherein in terms of an electronic trading application. It will beunderstood that the electronic trading application may be any suitable,software, hardware, or both configured to implement the features of thepresent invention. The electronic trading application may be located ata central location (e.g., a central server). In another suitableapproach, the electronic trading application may reside among differentlocations (e.g., a network).

In one particular embodiment, the electronic trading application mayinclude client-side software, hardware, or both. For example, theelectronic trading application may encompass one or more Web-pages orWeb-page portions (e.g., via any suitable encoding, such as XML, ColdFusion, etc.).

Although the electronic trading application is described herein as beingimplemented on user computer equipment, this is only illustrative. Theelectronic trading application may be implemented on any suitableplatform (e.g., personal computer, palmtop computer, laptop computer,personal digital assistant, cellular phone, etc.) to provide suchfeatures.

Further details of the invention are described below with respect toFIGS. 1-6.

Referring to FIG. 1, an exemplary system 100 for implementing thepresent invention is shown. As illustrated, system 100 may include oneor more trading workstations 102. Workstations 102 may be local orremote, and are connected by one or more communications links 104 to acomputer network 106 that is linked via a communications link 108 to aserver 110.

In system 100, server 110 may be any suitable server, processor,computer, or data processing device, or combination of the same.Computer network 106 may be any suitable computer network including theInternet, an intranet, a wide-area network (WAN), a local-area network(LAN), a wireless network, a digital subscriber line (DSL) network, aframe relay network, an asynchronous transfer mode (ATM) network, avirtual private network (VPN), or any combination of any of the same.Communications links 104 and 108 may be any communications linkssuitable for communicating data between workstations 102 and server 110,such as network links, dial-up links, wireless links, hard-wired links,etc. Workstations 102 enable a trader to engage in the trading process.Workstations 102 may be personal computers, laptop computers, mainframecomputers, dumb terminals, data displays, Internet browsers, personaldigital assistants (PDAs), two-way pagers, wireless terminals, portabletelephones, etc., or any combination of the same.

A back office clearing center 114 may also be connected to server 110 ofthe trading system via a communications link 112. Clearing center 114may be any suitable equipment, such as a computer, or combination of thesame, for causing trades to be cleared and/or verifying that trades arecleared. If desired, server 110 may contain multiple processors.Communications link 112 may be any communications link suitable forcommunicating data between server 110 and back office clearing center114, such as network links, dial-up links, wireless links, hard-wiredlinks, etc.

The server, the back office clearing center, and one of theworkstations, which are depicted in FIG. 1, are illustrated in moredetail in FIG. 2. Referring to FIG. 2, workstation 102 may includeprocessor 202, display 204, input device 206, and memory 208, which maybe interconnected. In a preferred embodiment, memory 208 contains astorage device for storing a workstation program for controllingprocessor 202. Memory 208 also preferably contains a VWAP tradingapplication 210 according to the invention.

VWAP trading application 210 may preferably include an applicationprogram interface (not shown), or alternatively, as described above,VWAP trading application 210 may be resident in the memory of server110. In this embodiment, the electronic trading application may containVWAP trading application 210 and an application program interface (notshown) as a discrete application from the electronic trading applicationwhich also may be included therein. The only distribution to the tradermay then be a Graphical User Interface which allows the trader tointeract with VWAP trading application 210 resident at server 110.

Processor 202 uses the workstation program to present on display 204 theelectronic trading application and trading information relating tomarket conditions received through communication link 104 and tradingcommands and values transmitted by a trader of workstation 102.Furthermore, input device 206 may be used to manually enter commands andvalues in order for these commands and values to be communicated to theelectronic trading application.

Server 110 may include processor 220, display 222, input device 224, andmemory 226, which may be interconnected. In a preferred embodiment,memory 226 contains a storage device for storing information relating tomarket conditions received through communication link 108 or throughother links, and also receives trading commands and values transmittedby one or more traders. The storage device further contains a serverprogram for controlling processor 220. Processor 220 uses the serverprogram to transact the purchase and sale of the fixed income relatedinstruments.

Back office clearing center 114 may include processor 228, display 230,input device 232, and memory 234, which may be interconnected. In apreferred embodiment, memory 234 contains a storage device for storing aclearing program for controlling processor 228. Processor 228 may usethe clearing program to complete the transactions that are entered intoby the traders. Processor 228 uses the clearing program to furtherverify that the transactions are completed and cleared.

FIG. 3 illustrates one embodiment of a graphical interface forsubmitting trading commands using, for example, one of the workstations102 as shown in FIGS. 1 and 2. As shown, the graphical interfacecomprises a dialog window 300 with various buttons and entry fields302-344. Using these buttons and entry fields, a trader may submit a bidcommand, an offer command, a buy command, or a sell command for an itemcorresponding to a market cell. A market cell is illustrated in FIG. 5.Preferably, each traded item uses a unique dialog window 300. Dialogwindow 300 may be opened automatically and/or manually before, during,and/or after a trade, and may allow a trader to submit a trade commandat any time. The dialog window 300 may be repositioned on a trader'sdisplay and/or fixed in place. The trader, preferably, will keep thewindow associated with a particular instrument below the market cell forthe same tradable item. The number of dialog windows 300 that can bekept open at any one time is preferably unlimited.

As shown in FIG. 3, dialog window 300 may comprise a variety ofon-screen buttons and entry fields. Generally, a button, as displayed inwindow 300, may be “pushed” by placing a pointing device's pointer overthe button and pressing a switch on the pointing device, as is commonlyknown in the art. At the center of window 300, a numeric keypad 302 maybe displayed. The numeric keypad 302 may provide buttons for numberszero through nine and may contain buttons for numbers ten, twenty-five,fifty, and one hundred or any other appropriate or desirable values. Thenumeric keypad 302 may also contain a plus button (“+”), a minus button(“−”), a decimal point button (“.”), a backspace button (“BKS”), and adelete button (“DEL”).

In addition to displaying a numeric keypad as described above, dialogwindow 300 may also provide a trader with a buy button 304, a sellbutton 306, a cancel buys button 308, a cancel sells button 310, a bidbutton 312, an offer button 314, a cancel bid button 316, a cancel offerbutton 318, a cancel all button 320, a cancel all for this instrumentbutton 322, a cancel all bids button 323, a cancel all offers buttons321, a price entry field 324, price up and down buttons 326, bid priceup and down buttons 328, offer price up and down buttons 330, a sizeentry field 332, and size up and down buttons 334. Finally, dialogwindow 300 may contain a preference field 336, a configure keypad button340, a close button 342, and an assign buttons button 344.Close-on-action box 338 causes dialog window 300 to be automaticallyclosed after specified actions are performed. Close button 342 closesthe dialog window 300 on demand.

Configure keypad button 340 may allow a trader to arrange buttonsappearing in dialog window 300 to be anywhere a trader prefers by firstpressing the configure keypad button 340, by then dragging the buttonsto new positions, and finally by clicking on button 340 again. Also, theconfiguration or re-configuration of buttons can change the function ofthose buttons depending on the type of trading desired or what type ofitem is being traded.

Preference field 336 allows a trader to specify preferred types oforders. Preference field 336 may be used to indicate the trader'spreferred trade type and may allow the trader to select any type oftrade that a particular exchange or trading system supports. AlthoughFIG. 3 provides specific examples of trade types (e.g.,good-till-canceled (GTC), volume-weighted average price (VWAP),all-or-none (AON), stop, and market-if-touched (MIT)), it will beappreciated that this invention may be implemented with any type oftrade.

As shown in FIGS. 3 and 4, in response to a trader selecting to trade onthe VWAP in preference field 336, a window 402 may appear that providesa trader with the ability to select an available VWAP auction. In thisexample, each available VWAP auction is listed by its corresponding VWAPauction period. As used herein, the VWAP auction period is the timeperiod in which traders may enter VWAP bids or orders. As shown in FIG.4, window 402 shows that there are four available VWAP auctions that thetrader may enter. In this example, the VWAP auction session isidentified by the VWAP auction open time and the VWAP auction closetime. The trader may select one of the available VWAP sessions:7:30-8:00, 10:00-11:00, 9:00-15:00, or 7:00 on June 26 to 15:00 on June27.

It should be noted that multiple VWAP auctions may take place at thesame time on the same item. For example, the electronic tradingapplication may accept VWAP orders on the 5 year U.S. Treasury bond forevery hour, where each VWAP auction period lasts two hours. In someembodiments, VWAP auction may surround an economic release.

Although FIGS. 3 and 4 show an example of how a user may enter a VWAPauction session by selecting a VWAP order type or attribute on anexisting instrument, it should be obvious to those of ordinary skill inthe art that the same features of the present invention are availablefor any instrument. VWAP orders may be submitted using a separate VWAPinstrument. For example, a trader may bid on a separate VWAP item, suchas “usg_(—)30Y vwap 09:30-10:00.” In this example, the VWAP item isdesignated as a VWAP contract name along with the corresponding VWAPauction session.

In yet another embodiment, a trading interface that may be configured toprovide a requesting trader with an opportunity to submit and monitor arequest for quote (RFQ). An RFQ may be constructed for any instrument ina particular market. In this example, VWAP orders may be submitted usingthis RFQ application, where the VWAP auction session is the length ofthe RFQ. Systems and methods for providing a trading interface with arequest for quote (RFQ) functionality are also described, for example,in Gilbert et al. U.S. patent application Ser. No. 10/113,841, filed inMar. 29, 2002, which is hereby incorporated by reference herein in itsentirety.

In response to a trader selecting an available VWAP session, the tradermay be prompted to enter an order. During the VWAP auction period,traders may enter bids—i.e., orders to buy at the VWAP price—andoffers—i.e., orders to sell at the VWAP price. As shown in FIG. 4, thetrader is prompted to enter a symbol name (e.g., usg_(—)10Y VWAP) and asize. In some embodiments, a trader may also enter a spread to thecalculated VWAP price. For example, the trader may be permitted to entera bid or an offer at some increment to the calculated VWAP price.

FIG. 5 shows an illustrative display of a market cell 500 in which atrader has initiated trading in accordance with the principles of thepresent invention. Market cell 500 shows that the trader isparticipating in a market in which an item 502 (e.g., usg_(—)02Y vwap)is being traded. Item 502 may be any suitable type of commodity, suchas, for example, securities, bonds, coupons, etc. As shown in FIG. 5 i aprice indicating the current selling and/or buying price of item 502 isnot displayed because the traders are bidding at the VWAP price. In thisembodiment, orders include a size and a side (e.g., buy or sell). Itemindicator 504 provides traders with an indication of the quantity ofitem 502 available in the market. If, for example, sellers are operatingin the active side of the market, item indicator 504 informs the tradersof the total number of items 502 that are available for sale in themarket.

Market cell 500 also includes a seller stack 506 and a buyer stack 508.Seller stack 506 informs traders of the quantity of items 502 that aparticular seller is offering to sell. Likewise, buyer stack 508 informstraders of the quantity of item 502 that a particular buyer is offeringto buy. As shown in FIG. 5, seller stack 506 and buyer stack 508 showsthat a seller is offering to sell 125 million 2 Year U.S. Treasury bondsat the VWAP price and a buyer is offering to buy 150 million 2 Year U.S.Treasury bonds at the VWAP price. Market cell 500 also includes a marketspread indicator 510 that provides traders with information regardingthe depth of the market (i.e., the price and quantity of items availablein the market).

In response to a trader placing an order, a trade history window 520 mayprovide the trader with a confirmation and status information of thetrader's orders. As shown in FIG. 5, the trader has placed a bid for 150million 2 Year U.S. Treasury bonds at the VWAP price. Trade historywindow 520 provides the trader with a confirmation message 522. In thisexample, confirmation message 522 informs the trader that the trader'sbid has been accepted.

When the VWAP auction session closes, no more bids or offers areaccepted. After a predetermined time, the VWAP calculation periodbegins. As used herein, the VWAP calculation period is the period oftime in which the size and price data of placed orders from one or moretraders is collected. The collected data is processed to determine theVWAP price. In some embodiments, the VWAP calculation period occursafter the VWAP auction period. However, the VWAP calculation period mayoccur at any other suitable time. For example, the VWAP auction periodand the VWAP calculation period may be concurrent, thereby creatingarbitrage opportunities. For example, a trader may buy on the VWAP priceduring a first VWAP period for immediate resale during another VWAPperiod in order to profit from a price discrepancy.

One embodiment of a VWAP trading process that may be used to provideVWAP auctions in accordance with the principles of the present inventionis illustrated in FIG. 6. In practice, one or more of the steps shownmay be combined with other steps, performed in any suitable order, ordeleted. At step 610, the electronic trading application may notifytraders of an upcoming VWAP auction. For example, traders may be invitedto participate in an upcoming VWAP auction by entering bids and/oroffers during a VWAP auction period. Traders may also be provided withsession reminders. In some embodiments, the electronic tradingapplication may communicate a reminder to a trader, such as “VWAPsession 7:30 am-8:30 am begins in 2 minutes” or “VWAP session 7:30am-8:30 am closes in 1 minute.”

At step 620, a trader may initiate a trade at the VWAP price (e.g.,place an offer to sell or buy an item). As shown in FIGS. 3 and 4, thetrader may select from a list of available VWAP auction sessions. Inresponse to selecting an available VWAP auction session, the trader hasa predetermined amount of time to place bids and/or offers. As shown inFIG. 4, the trader is prompted to enter a symbol name (e.g., usg_(—)10YVWAP) and a size. In some embodiments, a trader may also enter a spreadto the calculated VWAP price. For example, the trader may be permittedto enter a bid or an offer at some increment to the calculated VWAPprice.

In some embodiments, traders may be permitted to place orders that areimprovements to the VWAP price. For example, a buyer may enable priceimprovement to enter an improved price (e.g., a fraction or increment)higher than the current price to make the bid more aggressive. Forexample, if a current selling price is 106.06, a trader may enter anorder such that a price improvement of 106.056 is obtained. Entering amore aggressive bid may also move the buyer to the top of the stack. Asused herein, an improved price is a price that is better than the touchprice—i.e., a price at which a trader initiated trading for a particularitem. A better price, however, is dependent on whether the trader is abuyer or a seller. If the trader is a buyer, then a better (i.e., moreaggressive) price is higher than the touch price. If the trader is aseller, then a better price is lower than the touch price. Personsskilled in the art will also appreciate that “improved prices” can bedependent on a particular type of market. For example, in a yieldmarket, a seller's action may be improved by submitting a price higherthan the touch price.

In some embodiments, a trader may set a price improvement level of“BEST” using dialog window 300 or dialog window 400 as shown in FIGS. 3and 4. The “BEST” price improvement setting (not shown) may allow atrader to automatically jump in front of other traders in the stack. The“BEST” price improvement setting increases the order price at anysuitable increment (e.g., 0.25, 0.50, 0.75, etc.) that is moreaggressive than the price currently at the top of the stack.

Systems and methods for providing price improvement in an active tradingmarket are also described, for example, in co-pending, commonly-assignedSweeting U.S. patent application Ser. No. 10/171,009, filed Jun. 11,2002, which is hereby incorporated by reference herein in its entirety.

At step 630, once the electronic trading application has determined thatthe VWAP auction period has ended, the electronic trading applicationmatches the VWAP orders. In some embodiments, VWAP orders may be matchedon a first-in-first-out (FIFO) basis.

In another suitable approach, VWAP orders may be matched on an averagesize basis—i.e., orders are filled based upon a percentage of the sizeof the order in relationship to the lesser of the sum of the bid sizesor the sum of the ask sizes. For example, a first trader may place anorder to buy 200 million 30 Year U.S. Treasury bonds, a second traderand a third trader may each place an order to buy 100 million 30 YearU.S. Treasury bonds, and a fourth trader may place an order to sell 150million 30 Year U.S. Treasury bonds. In this example, the first traderhas placed an order that is fifty percent of the total offers to buy.After the VWAP price is calculated, the first trader receives fiftypercent of the 150 million bonds that the fourth trader is willing tosell or 75 million bonds. The second and third traders each receivetwenty-five percent of the 150 million bonds or 37.5 million bonds.However, it should be noted that a trader may set the VWAP order as anall-or-none (AON) VWAP order such that either the entire VWAP order isfilled or the entire VWAP order is cancelled.

In another suitable approach, the electronic trading application mayprioritize the stack first by best price and then by time of order inorder to match VWAP orders. However, the electronic trading applicationmay match and/or prioritize VWAP orders using any other suitableapproach.

In response to matching the VWAP orders, the electronic tradingapplication cancels the VWAP orders that are not matched at step 650. Insome embodiments, VWAP orders that are not matched may be rolled over toanother VWAP session on the same item. In other embodiments, a tradermay place a recurring VWAP order such that the VWAP order is placed eachday for a specific VWAP auction session. For example, a trader may enteran order to buy 150 million 2 Year U.S. Treasury bonds at the VWAP priceeach day for a particular VWAP auction session until the VWAP order isfilled. In some embodiments, the recurring VWAP order may be placedevery day until the trader cancels the recurring order.

In response to matching VWAP orders (at step 640) and canceling theunmatched VWAP orders (at step 650), the electronic trading applicationmay collect size and price (if available) information of the receivedorders. The electronic trading application processes the collected sizeand price information to determine the VWAP auction price. As describedpreviously, the VWAP auction price is determined using the followingalgorithm:

${V\; W\; A\; P} = \frac{\sum\left( {{Traded}\mspace{14mu}{Price}} \right)\left( {{Total}\mspace{14mu}{Size}\mspace{14mu}{at}\mspace{14mu}{that}\mspace{14mu}{Price}} \right)}{\sum{{Total}\mspace{14mu}{Size}\mspace{14mu}{of}\mspace{14mu}{Trade}\mspace{14mu}{during}\mspace{14mu}{Designated}\mspace{14mu}{Trading}\mspace{14mu}{Period}}}$

At step 680, the electronic trading application presents the traders ofthe VWAP auction session with the determined VWAP auction price. Inresponse to determining the VWAP price, the electronic tradingapplication fills the matched VWAP orders. In some embodiments, theelectronic trading application may physically deliver the matched VWAPorder. For example, suppose a trader buys 100 million 30 Year U.S.Treasury bonds at the VWAP price and the determined VWAP price is 100with an accrued interest equaling $2,000,000. The current 30 Year U.S.Treasury bonds may be delivered as opposed to a payment of $102,000,000.

In another suitable embodiment, the electronic trading application mayfinancially deliver the matched VWAP order. That is, financial deliverymay not require the exchange of securities, but rather it requires theexchange of some money based upon the settlement value of the VWAPsecurity. For example, suppose a trader buys $100 million 30 Year U.S.Treasury bonds at the VWAP price and the determined VWAP price is 100with an accrued interest equaling $2,000,000. The closing market priceat the time of the closing VWAP calculation period is $101,000,000. Thetrader receives the $1,000,000 directly from the seller of the bonds.

Thus, systems and methods for providing volume-weighted average pricetrading are provided. Persons skilled in the art will appreciate thatthe present invention can be practiced by other than the describedembodiments, which are presented for purposes of illustration and not oflimitation, and that the present invention is limited only by the claimswhich follow.

1. A method comprising: receiving by a server as part of an auction aplurality of orders for an item from a plurality of traders, whereineach order comprises a side, a price, and a size and wherein the auctionhas an auction close time, wherein as part of the auction matched ordersare filled based at least in part on a VWAP price that is determined aspart of the auction, wherein at least one of the plurality of VWAPorders comprises a bid to buy the item at the VWAP price offset by aprice increment, and wherein at least another of the plurality of VWAPorders comprises an offer to sell the item at the VWAP price offset bythe price increment; prioritizing by the server the plurality of ordersfrom the plurality of traders based on predetermined criteria after theauction close time; matching by the server the plurality of orders fromthe plurality of traders based at least in part on the prioritization ofthe plurality of orders, wherein a portion of the plurality of orders ismatched and a portion of the plurality of orders is unmatched, andwherein matching the plurality of orders includes matching the bid withthe offer at a price that includes the VWAP price offset by the priceincrement; canceling by the server the portion of the plurality oforders that are unmatched; and determining by the server the VWAP pricebased at least in part on (i) a plurality of trade prices and tradesizes for the item, and (ii) the sizes and the prices at which theplurality of orders are matched, wherein external orders comprise thetrade prices and the trade sizes, and wherein the external orders arenot the plurality of orders; and wherein the portion of the plurality oforders that are matched are filled based at least in part on thedetermined VWAP price.
 2. The method of claim 1 further comprisingdistributing a notification to the plurality of traders regarding theauction.
 3. The method of claim 1 wherein the predetermined criteriaenables the prioritizing to be performed based on a time that each orderwas received.
 4. The method of claim 1 wherein the predeterminedcriteria enables the prioritizing to be performed based on an averagesize of the plurality of orders.
 5. The method of claim 1 wherein thepredetermined criteria enables the prioritizing to be performed based onthe price of each order received.
 6. The method of claim 1 furthercomprising rolling over the portion of the plurality of orders that arenot matched to a second auction.
 7. The method of claim 1 furthercomprising receiving a recurring order from a trader such that the orderis continuously placed in additional auctions until the trader cancelsthe recurring order.
 8. The method of claim 1 further comprisingreceiving a recurring order from a trader such that the order iscontinuously placed in additional auctions until the order is filled. 9.The method of claim 1 further comprising physically delivering theportion of the plurality of orders that are matched.
 10. The method ofclaim 1 further comprising financially delivering the portion of theplurality of orders that are matched.
 11. The method of claim 1 whereinreceiving a plurality of orders for the auction further comprisesreceiving at least one price-improved order having a price and a size.12. The method of claim 1 further comprising providing a notificationwhen the portion of the plurality of orders that are matched have beenfilled.
 13. An apparatus comprising: at least one processor; and amemory electronically coupled to the at least one processor, wherein thememory stores a program which, when executed by the at least oneprocessor, directs the at least one processor to: receive as part of anauction a plurality of orders for an item from a plurality of traders,wherein each order comprises a side, a price, and a size and wherein theauction has an auction close time, wherein as part of the auctionmatched orders are filled based at least in part on a VWAP price that isdetermined as part of the auction, wherein at least one of the pluralityof VWAP orders comprises a bid to buy the item at the VWAP price offsetby a price increment, and wherein at least another of the plurality ofVWAP orders comprises an offer to sell the item at the VWAP price offsetby the price increment; prioritize the plurality of orders from theplurality of traders based on predetermined criteria after the auctionclose time; match the plurality of orders from the plurality of tradersbased at least in part on the prioritization of the plurality of orders,wherein a portion of the plurality of orders is matched and a portion ofthe plurality of orders is unmatched, and wherein matching the pluralityof orders includes matching the bid with the offer at a price thatincludes the VWAP price offset by the price increment; cancel theportion of the plurality of orders that are unmatched; and determine theVWAP price based at least in part on (i) a plurality of trade prices andtrade sizes for the item, and (ii) the sizes and the prices at which theplurality of orders are matched, wherein external orders comprise thetrade prices and the trade sizes, and wherein the external orders arenot the plurality of orders; and wherein the portion of the plurality ofmatched orders are filled based at least in part on the determined VWAPprice.
 14. The apparatus of claim 13 wherein the program, when executedby the at least one processor further directs the at least one processorto distribute a notification to the plurality of traders regarding theauction.
 15. The apparatus of claim 13 wherein the predeterminedcriteria enables the prioritizing to be performed based on a time thateach order was received.
 16. The apparatus of claim 13 wherein thepredetermined criteria enables the prioritizing to be performed based onan average size of the plurality of orders.
 17. The apparatus of claim13 further comprising rolling over the portion of the plurality oforders that are not matched to a second auction.
 18. The apparatus ofclaim 13 wherein the predetermined criteria enables the prioritizing tobe performed based on the price of each order received.
 19. Theapparatus of claim 13 wherein the program, when executed by the at leastone processor further directs the at least one processor to receive arecurring order from a trader such that the order is continuously placedin additional auctions until the order is filled.
 20. The apparatus ofclaim 13 wherein receiving a plurality of orders for the auction furthercomprises receiving at least one price-improved order having a price anda size.